Defence Spending Provides Value Added to a Nation 

Defence Spending Provides Value Added to a Nation 

Defence Spending Provides Value Added to a Nation 

This article intends to show that public funds spent on defence provide value to the general population because a modernized Georgian Armed Forces will be more likely to deter potential aggressors to Georgia’s national sovereignty.

Georgia, like many other emerging countries is trying to become part of the NATO Alliance. Unfortunately, it is finding significant challenges when it comes to paying for the cost of transforming its defence institutions to be compatible with those of its’ prospective allies. In a time of economic uncertainty, caused by rising prices and depreciated currency, more and more questions are asked about the value of defence spending compared to what is needed in domestic and social programs. 

Military expenditure (MILEX) is a term from NATO’ vast list of military – industrial acronyms. MILEX includes all current and capital expenditures of the armed forces, the defence ministry, and all other expenses governed by numerous military laws and regulations. MILEX spending also supports the costs of paramilitary forces, if they are trained and equipped for military operations. MILEX includes all military and civilian personnel expenses, including pensions of military personnel, social services for personnel and dependants serving in armed forces. Besides personnel costs, these funds pay for operation and maintenance type items; procurement actions; military research and development and military aid. Excluded are civil defence costs and current expenditures for previous military activities, such as veterans' benefits and demobilization actions. This separation of military and non – military expenditures cannot be applied to all countries because of differences in laws.

Georgia’s total military expenditures include the MOD’s budget and pensions for the MOD retirees, excluded are benefits received from the Veteran Department. Military expenditures of Georgia in recent years have remained at about 2 % of its Gross Domestic Product, an amount equal to NATO’s long-standing target level. In 2014 actual expenditures amounted to 665 million (M) GEL, and it is estimated to reach 680 M GEL in 2015. Pensions are paid by the Ministry of Health and Social Care of Georgia and on average, amount to 10-12 M GEL annually. 

In reality, Georgia spends even more on security than just what is classified as defence. Active duty personnel of the Ministry of Interior are trained in military tactics and equipped as a military force. However the expenses of such troops are not included in defence because Georgian law prevents these troops from being deployed outside our national territory in support of a military operation.

Military expenditures also include the Legal Entity of Public Law (LEPL) “Delta. Their budgeted expenses are 32.5 million GEL for 2015 down from the previous year’s 33.9 million, when Delta was under the Ministry of Economy of Georgia. Georgia follows the NATO instructions that say if a country is financing military R&D, its’ should be included in the military expenditure, despite from what managing institution it is paid out, thus Delta’s expenditures are considered part of Georgia’s military costs. In 2015, Delta’s expenses are charged to the Ministry of Defence as it is managing the organization. 

A quick review of the MOD’s 2016 budget shows that much of its’ requested 670 M GEL supports pay and programs that provide significant social benefits to Georgian servicemen. About 60% of the MOD budget is distributed to personnel costs, largely pay and allowances as well as other personnel related expenses and social benefit type activities. To have a clear picture in terms of figures as much as 367 M Gel is allocated for salaries only. In addition, the MOD budget like the State budget has significant amounts of money planned for support of activities benefiting the general public. For example, defence’s most important social protection projects are insurance packages costing about 10 M GEL and the LEPL Military Hospital in Gori which costs 8 M. The medical and financial aid for the military servicemen’s fund is 1.5 M GEL and then there are bonuses for four or more children of about 0.8 M, contract bonuses and career bonuses as compensations attributable to military service, family allowances and benefits that when combined are about 20 M GEL. Besides these expenses, there are some other basic soldier needs such as: uniforms, food and rations which are paid for out of the defence budget. LEPLs implementing some of the MOD functions spend as follows: LEPL Delta 33.5 M, LEPL Cyber security 1.8 M, LEPL Military academy of Gori 15.9 M, Cadet Lycée 3.2 M and the Army Sports Club 0.07 M GEL. All of these activities are charged to the Georgian Defence Budget as part of the Defence Integrated Program, but all of them serve to benefit the general society as well.

The overall operational cost, which is necessary for maintaining only the current structure and capabilities of the armed forces, is about 90% of the entire military budget. This leaves very little money for future development that allows the Georgian Armed Forces to improve their capabilities as a deterrent against future aggressions. This lack of funding future force capabilities was also reflected in the major program of the MOD. This program with the largest share of the budget is titled “Sustainment of Military Armed Forces Combat Readiness”. Based on this distribution of funds, people should be able to understand that without future development there will be a continual decline in Georgia’s military capabilities. They will be unable to preserve peace through deterrence of potential aggressors, make supporting requirements from our prospective international alliances more difficult, and prevent recruiting of highly qualified personnel for technical positions and as future leaders of the armed forces. Just maintaining the status quo of the armed forces will eventually cause a decline in national security as potential adversaries advance their capabilities in support of achieving their goals through aggression.

The Ministry of Defence receives a slight nominal increase annually in the defence budget that is in line with the guidance provided by the Ministry of Finance. In real terms, however, there is a decrease that became most notable in November 2014 when the exchange rate for the GEL against the USD declined by about 40%. This means that the Ministry of Defence needs more money for international operations and to purchase goods and services that are imported from outside Georgia. As a result total funding for the budgeted program “International Cooperation” reached 55 M GEL for 2016. Devaluation of the GEL against the USD has also had a negative impact on the inflation rate. In 2015, the annual targeted rate of 5% increased to 5.5% in the first 9 months of the year. As a result the buying power of the Ministry of Defence has been significantly reduced.

The issue of spending on defence often causes questions from every part of society. Politicians, government officials, elected members of Parliament and citizens want to know if spending the recommended 2% of GDP on defence is too little, just enough, or too much. Along with the question of how much to spend is the question of what risk do we accept as a country if we do not spend money to develop future military and security capabilities. Those people who consider defence as an unnecessary, or unwanted service for the people of Georgia like to argue that funds used for defence can be better used in the general economy. A counter point to that position is that money spent on defence also stimulates the total economy through the basic multiplier effect derived for all government expenditures. 

A strong economy is critical to any country’s national security. History has shown that countries that can deter aggression with diplomacy backed up by a capable military force are more likely to have a stable domestic environment that is good for business. The idea that increased defence spending promotes militarization and threatens peace is outdated. Countries with strong defence sectors are better able to engage in international trade agreements and partner with nations for each one's collective good. These countries are more likely to be asked to join regional and international alliances because they are looked to as stable examples of social development characterized by progressive human rights programs and transparency in government spending. 

In summary, a country with adequate defence capabilities can expect peace and stable economic conditions. There is ample data to support the idea that an adequate defence, as part of a national security policy allows a country to focus its attention on other matters that are important to the well-being of its’ population. As an example, data from the Stockholm International Peace Research Institute (SIPRI) shows that there is a direct relationship between defence spending and long term peaceful existence. Switzerland with annual defence spending of almost five billion Swiss Francs (11.9 Billion GEL) has a history of peace, domestic prosperity, and international recognition as a country distinguished by good governance. As a final word we should think that is better to spend on defence to prevent war than to subject our population to the uncertainties of a nation that may become a victim of aggression.

Aboit author:

Lela Guledani is the Deputy Head of Financial Management Department at Ministry of Defence of Georgia